Tread cautiously

Tread cautiously

The effort to raise cap on FDI in defence from 26 per cent, which started during UPA regime in 2010 and was put off after strong opposition from the then defence minister A K Antony, is once again being pushed vehemently after new government under Narendra Modi has come to power at the Centre.

 It is notable that permission for FDI was first granted during the previous NDA government under the stewardship of A B Vajpayee.

 According to Press Note-4 in 2001, this policy was first announced, whereby Indian companies were allowed 100 per cent and foreign entities 26 per cent in defence sector.

It is said a cabinet note regarding FDI in defence has already been sent to the ministries concerned. The government says that today 70 per cent of our defence equipment needs are being met by imports and hardly 30 per cent by domestic production.

The major problem about the defence equipments being imported into India is that suppliers are not in a position to provide sufficient maintenance facilities. 
Therefore, these equipment are not very reliable during war. Therefore, in the interest of modernisation of our defence industry, its further exposure to FDI may prove to be a boon.However, critics argue that by allowing FDI in defence, our dependence on foreigners will increase. It is feared that our dependence on some countries and their blocs may amplify in the future.

They also argue that during war time, foreign companies, while trying to serve the strategic interests of their countries of origin, may even block the supplies at the time we require them most. This is also possible that they produce arms and ammunition in India and supply to our enemy nations or even terrorist organisations. 

It is believed that at present, foreign companies are reluctant to transfer their technology with the present cap on FDI at 26 per cent, they want greater share in the business. If we raise the limit beyond 26 per cent, they may be willing to transfer technology.

Not only that this would improve technological base for defence industry, other sectors would also be benefited due to improvement in technology. Defence goods could be produced within the country and help us in saving valuable foreign exchange.

 Liberalisation of FDI in this sector may also help us in increasing our exports of defence goods. Today India exports hardly 2 per cent of its defence production, whereas other countries including China, Israel, South Africa etc export much more than India.

Technology denial

Those in favour of FDI in defence give the argument that with this measure, the nation will get hold of latest technology in defence. But this is an open secret that technology denial regime is at work in advanced nations, USA in particular - it is known to possess advance technology in defence production.

Example of cryogenic engine is well known to all - USA not only refused to supply cryogenic engine for our PSLV programme, they even forced other nations not to give the same.

The US law does not permit its companies to make their technologies available to other countries, even if they are carrying out production activities in these countries. Therefore, if we open our doors for FDI in defence even further, technology transfer is not guaranteed. 

It is known to all that today India is excessively dependent on other countries for supply of defence equipment, arms and ammunition fighter, aircraft etc.

Not only that it causes a big drain on our valuable foreign exchange, we are also forced to pay much higher prices. After the disintegration of USSR, today India is purchasing defence goods on a large scale from USA, Western Europe etc. Therefore, theoretically the nation can benefit by inviting global players, as they may produce these defence goods with their latest technology and may serve our needs.

 However, giving them managerial control in this strategic sector may not be good for the strategic interest of our country. 

Major worry with regard to foreign investment is that of mindset of the policy makers, who feel that foreign investment is the solution to every problem.

 The basis for deciding whether or not the country should go in for FDI in defence should not be how much investment is attracted by this act, rather it should be based on the how much help it would provide for self reliance in the field of defence, technological upgradation and strategic preparedness. 

Reality remains that after Independence, there have been major efforts in the field of defence production although they were generally concentrated in the public sector. Further, there were insufficient efforts towards research and development.

 Wherever the government made efforts, we achieved excellence - development of Agni missiles, nuclear deterrent, PSLV, satellite launching etc have been astounding the world. 

Therefore, it is imperative that government takes up pro-active approach towards R&D activities for technological excellence. At present,  there is no provision with regards to isolating Chinese investment, while going ahead with foreign investment, government has to adopt cautious approach.

No doubt the nation cannot wait indefinitely for encouraging defence production at home, but at the same time, strategic interests too cannot be sacrificed. Therefore, a guarded approach is the need of the hour. There is no reason for haste in this matter.